Connecticut Wants To Take Obama’s Retirement Idea Further

It received a brief mention in President Barack Obama’s State of the Union address earlier this week, but Connecticut union officials and the Working Families Party want to take the idea of creating retirement savings accounts for all Connecticut residents even further.

On Wednesday while visiting a steel mill in Pennsylvania, Obama signed a presidential memorandum that directs U.S. Treasury Secretary Jack Lew to create a new type of savings bond that can be set up without legislation. The individual retirement account is being called MyRA.

“MyRA guarantees a decent return with no risk of losing what you put in,” Obama said Tuesday.

Sal Luciano, executive director of AFSCME Council 4, said it’s a “small first step, but it’s the only thing he can get done with a divided Congress.”

Luciano is urging Connecticut lawmakers to go much further by creating a public retirement plan that’s held in a trust and managed by the state Treasurer and a board of trustees. The trust would be separate from other trusts the state holds like the trust for the state employee pension and it would be a defined benefit plan, rather than a 401k type savings account.

A similar piece of legislation died last year in the state Senate before it could be raised for debate. That bill required the trust to offer individual retirement accounts to all Connecticut residents. Enrollment in the plan would be automatic with an option to opt out.

The General Assembly’s Labor and Public Employees Committee is expected to introduce it as a concept next week at its first meeting.

“By creating a public retirement plan, Connecticut would take a giant leap forward in fixing our state’s retirement crisis, and become a national model in providing workers a secure retirement,” Luciano said. “A public retirement option like this would provide employers and workers with a low-risk alternative to plans offered by the insurance industry, and would not require the employer to become a fiduciary or take on any liability.”

He said most people don’t have a professional money manager handling their retirement account and they are getting a low rate of return as a result. He said the retirement account the state would offer will be professionally managed and as a result it’s expected to get a little higher rate of return.

Opponents of the legislation last year didn’t like the idea that it would be a defined benefit plan, which is a type of pension plan that promises a specified monthly benefit upon retirement. A handful of people also testified that it wouldn’t have to comply with the Employee Retirement Income Security Act of 1974, which is a federal law that sets minimum standards for pension plans in private industry.

Michael Callahan of the American Society of Pension Professionals and Actuaries testified that the intent of the bill is good, but it would be a nightmare in practice.

“Federal law does not permit salary reduction contributions to a defined benefit plan for non-government employees, so their contributions would be subject to income tax,” Callahan testified.

Luciano knows there is opposition to the idea, but believes he’s built a coalition that will support it.

If they’re successful this year Connecticut will only be the second state to adopt such a plan. California did last year.

The bill is being supported by Senate Majority Leader Martin Looney. Last year, Looney testified that the program was designed to be self-sustaining and low risk based on the modest rate of return and long investment horizon.

Why advocates say it’s needed

The percentage of private sector employers offering retirement plans has fallen from 68 percent in 2001 to 58 percent in 2012.

According to a study done last year by the Schwartz Center for Economic Policy Analysis, an estimated 740,000 Connecticut residents were not participating in an employer-provided retirement plan.

“The increase in the number of individuals without retirement accounts poses a danger to the broader economy, which will suffer the destabilizing effects of the mass downward mobility of seniors,” Teresa Ghilarducci, author of the study, said. “Now is the time for Connecticut and other states to take a lead in providing an option for all workers to participate in a retirement savings plan at work.”

Comments

(14) Archived Comments

posted by: dano860 | January 31, 2014 10:54am

The unions didn’t waste any time jumping onto this one. They were probably instrumental in getting Owebama to put it on his list of “,Things a King can do.”
Now if the State would only fully fund the other pension plans that it is indebted to!

posted by: Joebigjoe | January 31, 2014 11:46am

These are very stupid people.

Mandatory retirement funding? Good idea.

Mandatory retirement funding where you have to be getting US Bonds is a very bad idea and only stupid people, naive people, and people that think the government should spend tons more each year will go for this.

Once you force people to buy government debt the Congress of both parties will spend it and put an IOU in the so-called lockbox.

Think this is not good but worth the risk for poorer people to have to do it?

Once the government starts to do this then they will start to force ALL people of all income levels to buy our debt so they can continue to spend.

In the end you’ll have nothing.

About 5 years ago a very liberal Congressman from California brought up a similar idea where he went right for the requirement of all 401K’s and pensions having to hold a certain amount of US debt. He said this in a meeting somewhere and it ended up on tape.

When people on the right started to play this and raise concerns we were told to go away as we were talking crazy and the government would never require people to take their own money and buy government bonds.

I guess he let the cat out of the bag too early.

Do not support this folks, and oh by the way, don’t believe for a second that there are people in Congress and lobbyists representing both parties salivating over the trillions held in 401Ks and pensions and how they can get their hands on it in the next financial collapse for the “good of the country”.

posted by: Chien DeBerger | January 31, 2014 11:58am

Okay, what is wrong with people being held personally responsible for openly and establishing your own retirement account?

posted by: Matt from CT | January 31, 2014 12:37pm

Considering Connecticut’s single biggest fiscal problem is the underfunding of the state’s own pension plans, and the history of other states such as New Jersey having raided formerly fully-funded pension plans (in their case the Firefighter & Police Officer pension system)...

Tell me again why you would trust the government with your savings?

posted by: jim black | January 31, 2014 12:48pm

First they will create it, then find a way to raid it.

posted by: Bluecoat | January 31, 2014 1:55pm

@jim black,
You are right on.
No doubt the language would be written so that private funds will be accessible by the State to shore up already broke public pension funds.
This has Ponzi Scheme Written all over it.

Remember, back in 2008,
Teresa Ghilarducci, professor of economic policy analysis at the New School for Social Research in New York, testified before Congress, proposing that 401(k)s and IRAs be confiscated and converted into universal Guaranteed Retirement Accounts (GRAs) managed by the Social Security Administration
The GRAs would be enforced by means of a mandatory savings tax equating to 5 per cent of an individual’s annual paycheck deposited to the GRA. Social Security and Medicare taxes would still be payable, employers would no longer would be able to write off their contributions and capital gains would be taxable year-on-year. In addition, workers could bequeath only half of their account balances to their heirs, unlike full balances from existing 401(k) and IRA accounts.

This also goes hand in hand with Rep. Betsy Ritter’s idea when she proposed a “hoarder tax” for private companies who have large amounts of cash on hand.
You see if you don’t spend your hard earned money to hire someone, then Betsy and the rest of the Progressives get to steal it from you!

posted by: joemanc | January 31, 2014 2:22pm

This poll is a couple of years old, but half of Americans 18-29 yo don’t think Social Security will be around when they retire. Since the Federal Government can’t manage Social Security, and the state already underfunds it’s pensions by billions, what makes these people think they can do better? N…O…NO! Stop. Enough. I choose to save for my retirement, as do many others. Despite all of the options available already, 401K, IRA’s and Roth’s, if folks don’t want to save for retirement, why should the responsible pay for it?

posted by: SocialButterfly | January 31, 2014 5:04pm

Pres. Obama now has over 300 Executive Orders in place so he can run the country—bypassing Congress in a dictatorial fashion—and bragged about doing it alone during his SOU address. It’s no wonder that Congressional Democrats and Republicans alike are considering to impeach the President.

posted by: Scott S | January 31, 2014 5:25pm

A recent study from the National Institute on Reitrement Security revealed that only 42% of private sector workers between the ages 25 and 64 in the U.S. have any retirement coverage in their current job, which means that roughly 38 million workers in the U.S. do not have any retirement account savings at all. Add to that the fact that Social security’s finances are not likely to survive the Baby Boom (as U.S. lawmakers have borrowed from the funds for decades). Some have done extremely well, but others haven’t been so skilled and/or lucky.

Other advanced democracies including the UK, Australia, and Israel have mandatory savings plans for moderate income workers which is sometimes referred to as “superannuation”.

Australia’s system, in particular, is very highly regarded system (by investment managers) and the Australians themselves. There, an employer must set aside 9% of an employee’s earnings currently to go into retirement savings, and will soon have to set aside 12%. Employees can choose to put more money in the mandatory savings plan if they wish, and often do at around 3%. The system is ideal because although our 401(k) plans can grow tax-advantaged, most individuals don’t have the financial skills to manage the process themselves. Even seemingly savvy Baby Boomers were burned when the stock market tanked a few years ago (most investment bankers would recommend portfolios consist of more cash-like investments as someone approaches retirement, hence their assets would not be endangered by stock market volatility, but because many did not save as much as they should have, they were more inclined to make risky decisions and got burned when the markets tanked).

posted by: Salmo | January 31, 2014 6:17pm

Don’t go for it, don’t go for it! Joebigjoe is spot on. We’ll end up investing in Husky pups or some other foolish thing and Big Government will be dipping into the pot for that or something else. There is already many rumors floating about that the U.N. is looking at U.S. pension and 401-K savings to fund projects in poverty stricken parts of the world. DON’T GO FOR IT!!!

posted by: SocialButterfly | February 1, 2014 1:22pm

@Saimo: Why spin off into rumors? Our elected Governor,General Assembly, U.S.Conressmen, and President—aren’t doing a good job of coping with our real problems. The taxpayers are paying for their glowing press releases—which we all must take “with a grain of salt.”

posted by: Fisherman | February 2, 2014 5:05pm

Christine,

Why did you feel it necessary to post my comment and then remove it?

posted by: Christine Stuart | February 2, 2014 6:39pm

Fisherman,
I have no idea what you’re talking about. I approve a lot of comments these days and it was removed if it did not adhere to our commenting policy. If you believe we made a mistake I’m happy to chat about it. Email me at ctnewsjunkie at gmail.com

posted by: Joebigjoe | February 3, 2014 5:38pm

If you do some research on US Bill “HB5337,” you will find the plan to nationalize retirement wealth. On May 6, 2012 Lauren Schmitz, a research analyst at the Bernard L Schwartz Center for Economic Analyst (SCEPA), introduced HB5337. This 401(k)/IRA de-privatization is the brainchild of Teresa Ghilarducci, whom through funding from the White House and the Ford & Rockefeller Foundations engineered a new “Regulatory & Tax Incentive.” The purpose is to force Americans to convert their Retirement Accounts into Government Managed accounts.